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2006 ALPFA Case Studies

SOLUTIONS

Case 1: CB Manufacturing
Discussion Material
Objective: This case exposes students to issues dealing with leasehold improvements. More
specifically it looks at the amortization periods for leasehold improvement from business combinations
and those that are placed in service significantly after the start of the lease term.
Answers:
1. Leasehold improvements that are placed in service significantly after and not contemplated at
or near the beginning of the lease term should be amortized over the shorter of the useful life
of the assets or a term that includes required lease periods and renewals that are deemed to
be reasonably assured (as defined in paragraph 5 of Statement 13) at the date the leasehold
improvements are purchased. In this case, the leasehold improvements should be amortized over
approximately four years, which is the time period remaining on the lease.
2. Leasehold improvements acquired in a business combination should be amortized over the shorter
of the useful life of the assets or a term that includes required lease periods and renewals that
are deemed to be reasonably assured (as defined in paragraph 5 of Statement 13) at the date of
acquisition. In this case, the acquired leasehold improvements should be amortized over the period
remaining of the initial five-year term (approximately two years) plus the two year renewal period
because renewal is reasonably assured as of the date of the business combination (approximately
four years in total). The resulting amortization period for the acquired leasehold improvements
(approximately four years) would be less than the remaining useful life of the related asset
(approximately five years).
References:
EITF No. 05-6, Determining the Amortization Period for Leasehold Improvements Purchased after
Lease Inception or Acquired in a Business Combination.
FASB Statement No. 13, Accounting for Leases
FASB Statement No. 98, Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate,
Sales-Type Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs of Direct
Financing Leases
FASB Statement No. 141, Business Combinations
FASB Interpretation No. 21, Accounting for Leases in a Business Combination

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2006 ALPFA Case Studies


SOLUTIONS

Case 2: Christophers Computers, Inc.


Discussion Material
Objectives: Students must determine the proper way to account for the assets involved in the
restructuring for Christophers Computers, Inc.s quarter-end financial statements. A decision must be
made on whether to classify the assets to be disposed of as long-lived assets to be held and used or longlived assets to be disposed of by sale. A determination must also be made on whether an impairment
charge is necessary for the asset group.
Answers:
1. The Seattle manufacturing facility along with the related television equipment and special interior
building configuration constitute an asset group and will be classified as long-lived assets to be held and
used. This group does not meet the criteria to be classified as held for sale since it will continue to be
used during the ten month phaseout period and therefore is not available for immediate sale. Therefore,
the asset group does not meet the held for sale criteria of paragraph 30(b) of FAS 144.
2. To record an impairment loss, the carrying value of an asset cannot be recoverable and must exceed fair
value. The carrying value of an asset is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use and eventual disposition of the asset. In this case, the estimated
future cash flows from the television manufacturing operations are $25.5 million ($3.5 million cash
flows from the television manufacturing operations and $22 million from the sale of the manufacturing
plant and related assets), which does not exceed the $28 million carrying value of the asset group($8
million for the television equipment and special interior building configuration and $20 million for the
manufacturing facility); therefore an impairment loss should be recorded. The amount of the loss is
measured as the amount by which the carrying value of a long-lived asset group exceeds its fair value.
The carrying value is $28 million and the fair value is $22 million, so Christophers Computers, Inc. will
record a $6 million impairment loss for the asset group. If the fair value of the individual assets of the
asset group is not determinable without undue cost and effort, the impairment loss should be allocated
to the individual assets of the asset group on a pro-rata basis in accordance with Example 1 of Appendix
A of FAS 144. The Company should continue to monitor the situation of its assets to see when they
should be classified as assets held for sale or for further impairment indicators. If the held for sale
criteria is ultimately determined to be met at some point it the future, an evaluation would need to be
performed to as to whether the asset group met the criteria to be presented as discontinued operations.

References:
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-lived Assets

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2006 ALPFA Case Studies


SOLUTIONS

Case 3: Daves Auto Mart


Discussion Material
Objective: This case exposes students to two main types of accounting issues. The first issue deals
with how to account for two or more inventory purchase and sales transactions with the same
counterparty. The second issue deals with whether or not the nonmonetary exchange of inventory
should be recognized at fair value.
Answers:
1. Daves inventory sales transaction was entered into in contemplation of a reciprocal inventory
purchase transaction from Amy because, as a condition of selling SUVs to Amy, Dave must accept
delivery of trucks from Amy at a later date, if Amy chooses to make such a delivery. Consistent
with past history, when Dave enters into this kind of arrangement with Amy, Dave fully expects
to purchase the trucks. Therefore, the sale of the SUVs should be considered combined with
the purchase of the trucks. Indicators that purchase and sale transactions may have been in
contemplation include:
Specific legal right of offset of obligations
Entered into simultaneously
Transactions entered into with off-market terms at inception
Relative certainty of reciprocal inventory transactions
2. A nonmonetary exchange within the same line of business involving (a) the transfer of raw
materials or WIP inventory in exchange for the receipt of raw materials, WIP, or finished goods
inventory or (b) the transfer of finished goods inventory for the receipt of finished goods inventory
should not be recognized at fair value but rather as an exchange of equal value. Accordingly, no gain
or loss should be recognized as the exchange effectively facilitates the fulfillment of inventory, not
the culmination of an earnings process. Students might also consider issues associated with lower
of cost or market for the inventory as well if they argue that the market value of the exchanged
vehicles is lower that when the respective dealers first received the vehicles.
References:
EITF No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty.
FASB Statement No. 153, Exchanges of Nonmonetary Assets
AICPA Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing
APB Opinion No. 29, Accounting for Nonmonetary Transactions

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2006 ALPFA Case Studies


SOLUTIONS

Case 4: Faulks Phone Group


Discussion Material
Objective: Students are expected to determine the appropriate accounting treatment for the revenues and
costs associated with training employees. They must differentiate between recognizing the revenues and
expensing the costs as incurred or deferring and recognizing straight-line or proportionately over the life of
the contract.
Answer:
1. FPG is appropriately accounting for its call revenues but not appropriately accounting for its training
revenues or training costs. Since call revenue is earned as the telephone service representatives
perform their services, revenues should be recognized based on when the service is performed.
The training revenue, while received up front, is an advance that benefits customers as services are
provided during the contract life. Since the arrangements between FPG and its clients constitute one
unit of accounting, revenue should be recognized in one manner; therefore, if call volume and related
revenue is not level, it is not appropriate to recognize training revenue on a straight-line basis (while call
revenue is not). Instead, training revenue should be deferred and recognized in the same manner as the
proportion of call revenue recognized (as a percentage of total call revenue expected to be recognized
over the life of the contract).
The training costs incurred by FPG help it earn revenue over the life of each of their contracts. Since the
training revenue is recognized in proportion to call revenue over the life of the contract, it is appropriate
that these training costs should be deferred and recognized in the same manner as the revenue.
These costs should not be expensed as incurred because FPG is not receiving the economic benefit
associated with these training costs until the revenue is recognized. FPG should begin deferring the
costs of training TSRs and recognize the expenses in proportion to the call revenue recognized.
References:
Statement of Financial Accounting Concepts 5, Recognition and Measurement in Financial Statements of
Business Enterprises
Statement of Financial Accounting Concepts 6, Elements of Financial Statements
Accounting Terminology Bulletins 4, Cost, Expense, and Loss
Financial Accounting Standards Board Technical Bulletins 90-1, Accounting for Separately Priced Extended
Warranty and Product Maintenance Contracts
Emerging Issues Task Force 00-21, Change in Accounting Principle: Revenue Arrangements with Multiple
Deliverables
SEC Staff Accounting Bulletin 104, Revenue Recognition
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2006 ALPFA Case Studies


SOLUTIONS

Case 5: Floyds Flyers, Inc.


Discussion Material
Objective: The purpose of this case is to expose students to financial reporting for point and loyalty
programs. Students are asked to evaluate whether a companys current policy is in accordance with GAAP
and to consider whether an alternative method of accounting for a point and loyalty program would be
more appropriate and more advantageous to the company.
Answer:
1. To classify the frequent-flyer obligations as a liability, the liability must be probable and estimable. If one
or both of these conditions are not met but there is at least a reasonable probability that a loss or an
additional loss will be incurred, a disclosure should be made in the financial statements. Floyds Flyers
should be able to estimate the mileage to be redeemed to report a liability. Since the nature of a frequentflyer program is to stimulate traffic by rewarding frequent flyers, there is a reasonable probability that a
material proportion of frequent flyer points issued will be redeemed. Therefore, reporting frequent flyer
miles as liability on the balance sheet normally is appropriate since there is enough information to predict
a reasonable estimate of the value of the awards to be redeemed by Floyds Flyers.
2. Under the deferred revenue method, a part of each ticket price purchased by an FFP member should
be deferred until such time as a ticket associated with the use of the frequent-flyer award is used. In
most circumstances, the amount allocated to the FFP travel award would be that normally derived from
a discounted ticket with similar restrictions. Alternatively, the incremental cost method can be used to
account for the frequent-flyer program. Under this method, the liability amount is the total additional
costs of servicing customers when there otherwise would be an empty seat. Incremental costs
typically include the cost of food, drink, fuel, ticket delivery costs and certain types of insurance. The
deferred revenue method is acceptable in virtually all circumstances, while the incremental cost method
would be inappropriate (and deferred revenue method therefore appropriate) in circumstances in which
(a) a significant number of paying passengers are displaced by passengers redeeming awards and (b)
the award is significant in comparison to the value of the amount paid to accumulate the award. The
incremental cost method is used by a majority of the airlines in the industry for accounting for frequent
flyer programs and results in a smaller liability than the deferred revenue method. Given the facts of this
case, Floyds Flyers should continue to use the incremental cost method of accounting for the FFP.
References:
FASB Statement No. 5, Accounting for Contingencies
Statement of Financial Accounting Concepts 5, Recognition and Measurement in Financial Statements of
Business Enterprises
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
International Air Transport Association Airline Accounting Guideline No. 2, Frequent Flyer Program
Accounting
EITF Issue No. 00-22, Accounting for Points and Certain Other Time-Based Sales Incentive Offers, and
Offers for Free Products or Services to be Delivered in the Future
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2006 ALPFA Case Studies


SOLUTIONS

Case 6: Mills Machines, Inc.


Discussion Material
Objective: Students are expected to consider the appropriateness of a companys policy of accruing
product recall costs at the date the recall campaign is announced to the public and the appropriateness
of changing this policy to one of accruing product recall costs at the time of sale. This case involves
accounting for contingencies, disclosure requirements for guarantees, and changes in accounting
policy vs. change in accounting estimate or correction of an error.
Answers:
1. Mills current policy of accruing product recall costs on the date it is announced to the public is
not an appropriate policy and is a departure from GAAP. According to paragraph 8 of SFAS No. 5,
Accounting for Contingencies (FAS 5), when there is a high probability that a future event, such as
a product recall, will occur and the amount of loss can be reasonably estimated, a liability should
be recorded. Therefore, assuming that Mills has appropriate evidence to provide a reasonable
estimate of future probable product recalls, a liability should be recorded at the date of sale. If
future product recalls at the date of sale are not probable, the criteria in paragraph 8(a) of FAS 5 is
not met and accordingly, a liability is not recorded. If future product recalls at the date of sale are
probable but a reasonable estimate of the amount cannot be made, the criteria in paragraph 8(b) of
FAS 5 is not met and accordingly, a liability is not recorded. Inability to make a reasonable estimate
of the amount of a warranty obligation at the time of sale because of significant uncertainty about
possible claims may raise a question about whether a sale should be recorded prior to expiration of
the warranty period or until sufficient experience has been gained to permit a reasonable estimate
of the obligation. The date the recall campaign is announced should have no bearing on the date
that the related liability is accrued. Although, the timing of a recall announcement could coincide
with the date both conditions of paragraph 8 of FAS 5 are met, the event triggering the recognition
of a liability is the date the criteria under FAS 5 are met and not the date a company decides to
make a public announcement regarding a recall program. Paragraphs 24-26 of FAS 5 provide
additional information on product warranties.
2. a. Yes, this is a guarantee related to product performance.
b. No, according to paragraph 7(b) of FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others, product warranty guarantees are not subject to the initial recognition and initial
measurement provisions of this interpretation. However, Mills Machines, Inc. would be subject
to the disclosure requirements of this Interpretation which are discussed in paragraphs 1316.

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Solutions (continued)

2006 ALPFA Case Studies

As noted in part 1, Mills guarantee is recorded at estimated cost, not fair value, once both
criteria in paragraph 8 of FAS 5 are met.
This change should be treated as a correction of an error as Mills previous policy was not in
accordance with paragraph 8 of FAS 5 and thus represented a departure from GAAP. If the error that
resulted from Mills GAAP departure was material to prior period financial statements, those prior
period financial statements would need to be restated to correct this error in accordance with
SFAS No. 154, Accounting Changes and Error Corrections.
References:
FASB Statement No. 5, Accounting for Contingencies
FASB Statement No. 154, Accounting Changes and Error Corrections
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others

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2006 ALPFA Case Studies


SOLUTIONS

Case 7: Moyer Banking Enterprise


Discussion Material
Objective: This case exposes students to issues dealing with aggregating operating segments into
a single reportable segment. This case focuses on those operating segments that do not meet the
quantitative threshold required by paragraph 18 of Statement 131.
Answers:
1. Paragraph 17 of Statement 131 permits two or more operating segments to be aggregated into
a single operating segment if aggregation is consistent with the objective and basic principles of
Statement 131, if the segments have similar economic characteristics, and if the segments are
similar in each of the following areas:
a. The nature of the products and services
b. The nature of the production processes
c. The type or class of customer for their products and services
d. The methods used to distribute their products or provide their services
e. If applicable, the nature of the regulatory environment, for example, banking, insurance, or
public utilities.
EITF 04-10 clarifies when operating segments that do not meet the quantitative thresholds can be
aggregated. Aggregation is permitted only if it is considered to be consistent with the objective and
basic principles of Statement 131, the segments have similar economic characteristics, and the
segments share a majority of the aggregation criteria listed in (a)(e) of paragraph 17 of Statement
131. Since the operating segments have similar economic characteristics and are similar in areas c,
d, and e, they may be combined.
2. There are a number of conditions which would change the decision that these two operating
segments can be combined into one reportable segment:
a. Should any of the conditions in c, d, or e change for the savings and investing operating
segments, the segments would no longer be able to be combined because they would not
meet a majority of the conditions. These distinctions are important for combining operating
segments because financial statement users need to be able to evaluate segments of a
business that are significantly different, separately. Different operating segments face
different risks, both external and internal. Users need to assess financial information
attributed to segments impacted by these different risks, which is difficult to do when
dissimilar business financial results are combined.

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2006 ALPFA Case Studies

Solutions (continued)

b. If either or both of the savings and investments operating segments achieved growth such
that the individual operating segment now met the quantitative threshold the segments
would need to be reported as separate segments. This would also require comparative
data to be restated to show the newly reportable segment as a separate segment in the
comparative period even if that segment did not satisfy the quantitative criteria in the prior
period.
c. Operating segments that do not meet any of the quantitative thresholds may be considered
reportable, and separately disclosed, if management believes that information about the
segment could be useful to readers of the financial statements. Therefore, even though
the investments and savings operating segments do not meet the quantitative criteria
management may determine in a future period that there is information that would be of
interest to the readers of the financial statements that requires separate disclosure of these
two operating segments.
References:
EITF No. 04-10, Determining Whether to Aggregate Operating Segments That Do Not Meet the
Quantitative Thresholds
FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information

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2006 ALPFA Case Studies


SOLUTIONS

Case 8: Speedy Dry-Cleaning Acquisition


Discussion Materials
Objective: This case focuses on two different accounting issues that Speedy needs to consider after
acquiring Home Dry-Cleaning. Those two issues include determining useful life of an acquired intangible
asset and performing the annual goodwill impairment test pursuant to FASB Statement No. 142.
Answers:
1. The useful life of Home Dry-Cleanings trademark should be deemed indefinite because cash
flows are expected for an indefinite period of time, Speedy has the intent and ability to renew
the trademark for the foreseeable future without incurring substantial cost, and Speedy does not
believe that there are any competitive, contractual, regulatory, or obsolescence factors that will
impact the cash flow generation of the trademark. No amortization should take place until the
trademark no longer has an indefinite useful life, at which time it will be amortized. The trademark
should also be tested annually for impairment in accordance with Statement 142.
2. F.V. indicates Fair Value
Indicating Impairment
Fair Value of Reporting Unit
(Including $200,000 F.V. of internally developed
intangibles)
Carrying amount of reporting units net assets,
including goodwill
Indicator of impairment
Measurement of Impairment

850,000

F.V. of reporting unit


F.V. of Tangible Assets
F.V. of recognized intangibles
F.V. of unrecognized intangibles
Implied F.V. of goodwill
Carrying amount of goodwill
Impairment

(1,000,000)
$ (150,000)
850,000
(450,000)
(100,000)
(200,000)
100,000
(350,000)
$ (250,000)

References:
FASB Statement No. 142. Goodwill and Other Intangible Assets

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2006 ALPFA Case Studies


SOLUTIONS

Case 9: T-Shirts by Tommy


Discussion Material
Objective: This case exposes students to the accounting impacts of business interruption, which
became an important issue subsequent to the terrorist attacks of September 11, 2001. This case
helps students understand the issues involving FASB Statement No. 5, Accounting for Contingencies,
related to being able to estimate and record contingent losses but not be able to record gains until
realized. While EITF 01-10, Accounting for the Impact of the Terrorist Attacks of September 11, 2001, is
the best reference to utilize for this case, students might refrain from using it as a precedent because
the source of business interruption is not terrorist related. However, the expectation of storm-related
damage is reasonable for a business in Panama City, Florida, making it a similar context for students.
Answers:
1. T-Shirts by Tommy should recognize an immediate loss reserve and an associated liability as of
March 1, 2003, for its operating lease payments on the design equipment not being utilized,
provided that Tommy believes the three-month down time is a reasonable estimate (which is
the only condition necessary). In this case, T-Shirts by Tommy should recognize a liability for its
operating lease rentals through June 1 (the minimum period of time that the company will not have
space to continue t-shirt production). If Tommy believes he is unable to determine even a minimum
period of time before they secure an alternate location, he would not recognize a liability for future
operating lease payments because the period of time during which the equipment is unusable
could not be reasonably estimated. However, T-Shirts by Tommy should disclose the loss situation,
noting that losses are not reasonably estimable. This evaluation is also applicable for operating
lease payments on temporarily unusable facilities.
2. One course of loss mitigation is purchasing business interruption insurance. Had T-Shirts by
Tommy been insured, only losses not covered by insurance would need to be accrued at the date
of business interruption. However, if any disputes related to recovery of losses from the insurer
exist, a loss reserve should be accrued for the full amount of the estimable loss as of the date of
interruption. This reserve could later be reversed when the claim is settled. This scenario highlights
that only contingent losses can be accrued before actual losses are realized; contingent gains can
not be accrued under any condition. They can only be recorded when realized.
3. T-Shirts by Tommy should not accrue a loss reserve and associated liability at the date the equipment
is idled due to the lack of demand or the date of the disaster because a condition of business
interruption has not been established. Instead, operating lease expense should continue to be
recognized in accordance with paragraph 15 of Statement 13 and related interpretive guidance.

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Solutions (continued)

2006 ALPFA Case Studies


References:

EITF 01-10, Accounting for the Impact of the Terrorist Attacks of September 11, 2001
FASB Statement No. 5, Accounting for Contingencies
FASB Statement No. 13, Accounting for Leases
FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss
APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions

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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The
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2006 ALPFA Case Studies


SOLUTIONS

Case 10: Can Cola Company


Discussion Material
Objective: This case exposes students to the challenging topic of revenue recognition for complex
sales transactions, which are becoming more common in todays economy. Here, students must take
into consideration multiple deliveries of separable components to a complete system. The critical issue
for whether revenue can be recognized on partial shipments is whether the separable components
can be purchased from an unrelated buyer without requiring alterations to the shipped components.
Answers:
1. Cola Can Company should account for the deliverables as separate units for revenue recognition
purposes. The first condition for separation is met for the rollit and cutit. Although the shapeit is
essential to the functionality of the rollit and cutit, it could be acquired by the customer from an
unrelated entity without altering the capabilities of the rollit and cutit. The second condition for
separation also is met because sufficient objective, reliable, and verifiable evidence of fair value
exists to allocate the consideration to the rollit, shapeit, and cutit based on the prices charged for
the separate pieces of equipment by other unrelated vendors. The general right of return should
be accounted for in accordance with FASB Statement No. 48, Revenue Recognition When Right
of Return Exists. Since the contract for sale of the rollit, shapeit, and cutit does not provide the
customer any refund rights if the shapeit is not delivered, it is not necessary to alter the accounting
treatment based on the requirements of Statement No. 48 (paragraphs 1719) to this case.
2. If the shapeit could not be obtained from an outside source or a machine obtained from an outside
source inhibited the performance of the rollit and cutit, the first criteria for separation would not
be met. The second condition would not be met if all three pieces of equipment were not offered
individually in the open market. For example, if Ballotab Inc. could only purchase the shapeit
separately, there would be no reliable mechanism for determining the individual values of the rollit,
cutit, or shapeit.
References:
EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables
FASB Statement No. 5, Accounting for Contingencies
FASB Technical Bulletin No. 90-1, Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
FASB Statement No. 48, Revenue Recognition When Right of Return Exists

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2006 ALPFA Case Studies


SOLUTIONS

Case 11: Gofaast Engines


Discussion Material
Objective: This case exposes students to the implications surrounding long-term strategic alliances
with suppliers, under which suppliers incur the responsibility of design and development costs for
the manufacturer/purchaser. By structuring contracts in this fashion, suppliers are protected from
designing a customers unique component and not being able to recover the associated costs.
Ordinarily, research and development costs are expensed as incurred. However, these types of
contracts are unique in that research and design costs potentially can generate specific revenues
for the process of design and development (as opposed to the asset created by the design and
development), making the process a product for sale by the supplier in the event costs are not
recovered.
Answers:
1. Gofaast Engines should capitalize the design and development costs (as an asset) as costs are
incurred, up to a maximum of $100,000,000. Under this agreement, the amount of reimbursement
for design and development costs can be objectively measured and verified. For example, if
190,000 engines are produced and delivered under the supply arrangement, in addition to the
$5,500 per engine received for the engines produced and delivered (valued at $1.05 billion), Gofaast
Engines would be reimbursed for design and development costs incurred under the arrangement
of $5,000,000 [$100,000,000 - ($500 190,000)].
2. Absent a reimbursement arrangement, design and development costs should be expensed
as incurred under FASB Statement No. 2, Accounting for Research and Development Costs. If
the reimbursement was dropped to $50,000,000, Gofaast Engines could only record the first
$50,000,000 of costs as assets. Any additional costs should be expensed as incurred under FASB
Statement No. 2.
References:
EITF 99-5: Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements
FASB Statement No. 2, Accounting for Research and Development Costs
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived
Assets to Be Disposed Of
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
APB Opinion No. 20, Accounting Changes AICPA Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities
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SOLUTIONS

Case 12: HealthNorte


Discussion Material
Objective: This case illustrates to students how derivative instruments can be used as option
payments to employees when cash is deemed to be unavailable. The objective of the accounting
treatment is to ensure that the income statement properly reflects the matched expense to the
revenues generated by the employee when earning the compensation. Students will be tempted to
use the value of the stock on HealthNortes financial statements instead of the fair market value on the
award date. However, the value of the stock as compensation to Peters is the appropriate perspective
to consider when valuing the transaction.
Answers:
1. HealthNorte should account for the option granted as a derivative instrument. According to FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, derivatives
such as the ones granted to Russ Peters in the case should be recorded at fair value at inception.
If, for example, Hillyer Medicals stock was selling for $17 per share, the option would have a fair
value to HealthNorte of $1,700 in recording the related compensation expense. The option award
in the case is not within the scope of FASB Statement No. 123, Accounting for Stock-Based
Compensation, because the underlying stock is not an equity instrument of the employer. The
option award also is not subject to APB Opinion No. 25, Accounting for Stock Issued to Employees,
because FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, states that Opinion 25 does not apply to the accounting by an employer for awards
based on stock of an entity other than the employer
2. The option effectively lowers HealthNortes net income by $1,700. Any changes in value of Hillyer
Medicals stock should be characterized as compensation expense in HealthNortes income
statement. After the option has vested, however, changes in fair value may be reflected elsewhere
in HealthNortes income statement.
References:
EITF 02-8, Accounting for Options Granted to Employees in Unrestricted, Publicly Traded Shares of an
Unrelated Entity
FASB Statement No. 57, Related Party Disclosures
FASB Statement No. 123, Accounting for Stock-Based Compensation
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation
APB Opinion No. 25, Accounting for Stock Issued to Employees
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2006 ALPFA Case Studies


SOLUTIONS

Case 13: Kay Pee and Gee Play in Peoria


Discussion Material
Objective: This case exposes students to the accounting associated with service providers, which
often have a significant portion of their expenses associated with travel, meals, and lodging. While
manufacturers and retailers tend to consider such expenses as administrative expenses, these
costs are fundamental for many service providers and thus are part of revenues and cost of services
provided. Students will be tempted to consider revenues as only being amounts directly related to the
service provided.
Answers:
1. The reimbursement received for out-of-pocket expenses incurred should be characterized as
revenue in the income statement. The substance of the transaction relates to the fee paid from
the customer perspective. PeoriaBanc is paying for audit services. It could have engaged a local
firm to perform the audit but instead chose an out-of-town auditor. The expenses incurred to offset
the fees paid are inconsequential to the decision made by PeoriaBanc in contracting its audit with
Kaypee and Gee LLP. Thus, all amounts are paid for services rendered, making them revenues to
Kaypee and Gee LLP.
2. The treatment of the out-of-pocket expenses on Kaypee and Gee LLPs income statement is not
affected based on how the billing amounts are classified. The recovery of the expenses will still be
considered revenue related to the audit because the client is purchasing audit services, regardless
of how the expenses associated with that service are incurred by the provider of those services.
The accounting treatment would only differ if one of two conditions were present. First, the
provider had no latitude in establishing the reimbursement price for out-of-pocket expenses, which
likely would not be the case for Kaypee and Gee LLP. Second, the service provider earns no margin
on out-of-pocket expenses because the contract states that those expenses are to be billed based
on the actual costs incurred, which likely would not be the case for Kaypee and Gee LLP given
their desire to enter a new market. Had either one of these two conditions been met, Kaypee and
Gee LLP could reduce their out-of-pocket expenses by the amount reimbursed and not classified
amounts received from PeoriaBanc as revenue.
3. Should Kaypee and Gee low ball PeoriaBanc and earn less in revenues than their out-of-pocket
expenses to gain a foothold in Peoria, all out-of-pocket expenses in excess of revenues received
from the fixed fee would still be considered operating expenses and lead to a loss on the
engagement. The ramifications of this arrangement could have negative implications for the firm.
Reviews of the firms performance by peer institutions (assuming the bank is not publicly traded)

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2006 ALPFA Case Studies

likely would question the quality of work performed given the inability to perform the audit in a
profitable manner. Further, Kaypee and Gee will be faced with a difficult challenge in subsequent
years to increase the fees charged. Difficulties in subsequent years will continue to put pressure
on the firm to reduce costs, which could lead to actual quality deficiencies (or continued perceived
deficiencies from reviewers).
4. Should Kaypee and Gee be forced to resign as auditors due to a conflict of interest (i.e., the firm
discovers that it is not independent from the bank), recoverability of any of the agreed-upon fee is
negotiable and likely based on the party at fault for not discovering the lack of independence. Likely,
Kaypee and Gee are at fault and therefore would not be able to recover any of the engagement
fees. In that case, all incurred expenses to-date are recorded, leading to a loss on the engagement
for all amounts incurred. Any fees determined to be reimbursable would be considered revenues
that would reduce the loss. This scenario highlights the importance of thoroughly investigating the
extent to which any conflicts of interest might exist with a prospective audit client. In addition, the
reputation effects could cause further damage. For example, Kaypee and Gee might have difficulty
finding other clients in Peoria because of a perception of sloppiness in their performance.
References:
EITF 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket
Expenses Incurred
AICPA Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
AICPA Audit and Accounting Guide, Brokers and Dealers in Securities

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2006 ALPFA Case Studies


SOLUTIONS

Case 14: Luckys Lobsters.com


Discussion Material
Objective: This case presents an interesting accounting issue for student discussion, the substance
underlying shipping and handling fees charged by companies doing business over the Internet. A
common technique used by companies is to reduce selling prices and increase shipping and handling
fees. This case highlights that there should be no distinction when recording revenues. However,
classification of costs does not have to be consistent, as long as accompanying disclosures are provided.
Students likely will be tempted to recognize shipping and/or handling costs as SG&A expenses.
Answers:
1. Luckys Lobsters.com should classify the full amount billed to customers for shipping and handling
as revenue on its income statement. The entire $1.20 charged for each pound of lobster represents
revenues earned for the goods provided and should therefore be treated accordingly. It might seem
reasonable to net the shipping and handling revenues against the cost of the process, and in turn
only record $0.15 for every pound shipped as revenue. This option is erroneous, however, and could
be misleading to users regarding overall revenue generated.
2. Luckys Lobsters.com actually has options when deciding how to record the costs associated
with shipping and handling. Companies are provided flexibility in this decision but are required
to disclose their policy in the matter if shipping and handling fees are not included in cost of
sales. Both the amount of such costs and the line items on the income statement that include
them should be disclosed. Note once again that a deduction of shipping and handling costs from
revenues is not allowed.
3. Although their would be zero margin associated with the amount billed for shipping and handling
if Ben was to cut his fee to $1.05, the classification of the billed amount and the recording of costs
generated would not be subject to change.
References:
EITF 00-10, Accounting for Shipping and Handling Fees and Costs FASB Concepts Statement No. 5,
Recognition and Measurement in Financial Statements of Business Enterprises
FASB Concepts Statement No. 6, Elements of Financial Statements
AICPA Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins
APB Opinion No. 22, Disclosure of Accounting Policies
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
SEC Staff Accounting Bulletin No. 101B, Second Amendment: Revenue Recognition in Financial
Statements

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2006 ALPFA Case Studies


SOLUTIONS

Case 15: Speaks and Barkers Barter


Discussion Material
Objective: Students examine accounting for barter transactions in which similar, non-barter
transactions might be utilized to value the barter transactions. Students will be tempted to use
comparison transactions to value the barter transactions. However, this case incorporates parameters
associated with comparison transactions to illustrate the limitations associated with using similar, nonbarter transactions to value barter transactions.
Answers:
1. Although SS Inc. historically receives cash and/or stock for advertisement space, it will not be able
to reference the original transaction listed in the case. There are two reasons for this. First, the
prior transaction with BB Inc. took place eight months earlier, and although the advertisement
surrendered is in the same media and of the same advertisement vehicle, the allotted period
for comparison purposes may not be extended past six months. Second, both transactions are
between SS Inc. and BB Inc. Computing the fair value of such a barter transaction would require
SS Inc. to reference its historical practice of receiving cash for similar advertising from buyers
unrelated to the counter party in the barter transaction. In other words, it would need to look for a
sale of similar advertisement space to a company other than BB Inc. Only then could it recognize
the fair value and expense of the barter.
If the original transaction had taken place within the past month and was worth five times the size
of the original transaction, then once again the prior case cannot be used to help determine fair
value, even if it was with another company. The characteristics of the advertising surrendered for
cash must be reasonably similar to that being surrendered in the barter transaction with respect
to a number of things. One aspect relates to size, with particular emphasis on prominence and
duration. Therefore according to the criteria in EITF 99-17, SS Inc. could not simply recognize five
times the revenue and expense of the previous transaction referenced even if the transaction was
with a different company.
2. A corporation is not allowed to consider cash transactions subsequent to a barter transaction in
determining fair value. Despite the substantial difference in the amount of the sale and the trade
of the BB commercial spot, the fair value of the revenue and expense recognized in the barter
transaction with SS should not be adjusted.

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References:
EITF 99-17, Accounting for Advertising Barter Transactions

FASB Statement No. 53, Fin. Reporting by Producers and Distributors of Motion Picture Films
FASB Statement No. 63, Financial Reporting by Broadcasters
FASB Concepts Statement No. 6, Elements of Financial Statements
APB Opinion No. 29, Accounting for Non-monetary Transactions
AICPA Statement of Position 75-5, Accounting Practices in the Broadcasting Industry

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2006 ALPFA Case Studies


SOLUTIONS

Case 16: Toms Tractor Harvests an Acquisition


Discussion Material
Objective: This case provides students with an opportunity to consider separable intangible assets
involved in an acquisition. FASB Statement No. 141 requires that certain separable intangible assets
be recorded separate from goodwill and evaluated for impairment separate from goodwill in future
years. Students will be tempted either to lump all transactions in with goodwill or all separately without
appropriately considering the specifics associated with the transaction.
Answers:
1. The accounting issues to be considered for this transaction first are whether to recognize any
contract and/or customer relationship intangible assets resulting from the acquisitions. To help
determine whether separate intangible asset(s) should be recorded, the following two criteria
should be considered, and a separate intangible asset should be recorded if either criterion is met.
First, a contractual-legal relationship has been established and the intangible asset arises
from those contractual or legal rights, regardless of whether they are separable from the
entity (the contractual-legal criterion).
Second, the intangible asset is capable of being separated from the Company and sold,
licensed, transferred, etc. either alone or as part of a related contract, asset, or liability (the
separability criterion).
2. For the acquisitions of RLS and Tractor Heaven, several separable intangible assets should be
recognized at their fair value. The excess of the cost of RLS over the net of the amounts assigned to
assets acquired and liabilities assumed is recorded as goodwill. The following separable intangible
assets should be recognized:
Acquisition of RLS.
The contract with Farming Depot to be the exclusive provider of farming power equipment
meets the contractual-legal criterion and should be recorded as a separate intangible asset
at fair value apart from goodwill. Additionally, because RLS establishes its relationship with
Farming Depot through a contract, the customer relationship with Farming Depot meets
the contractual-legal criterion and must also be recorded at fair value apart from goodwill.
Since there is only one customer relationship with Farming Depot, the fair value of that
relationship would incorporate assumptions regarding RLSs relationship with Farming
Depot related to both farming power equipment and power tools.
The contract with Cattle Caller to be the exclusive provider of power tools should be
recorded as a separate intangible asset for similar reasons as the contract with Farming

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Depot. The purchase orders with Cattle Caller for farming power equipment (whether
cancelable or not) meet the contractual-legal criterion and, therefore, must also be recorded
at fair value apart from goodwill. Additionally, because RLS establishes its relationship with
Cattle Caller through contracts, the customer relationship with Cattle Caller meets the
contractual-legal criterion and must also be recorded at fair value apart from goodwill. Since
there is only one customer relationship with Cattle Caller, the fair value of that relationship
would incorporate assumptions regarding RLSs relationship with Cattle Caller related to
both farming power equipment and power tools.
Acquisition of Tractor Heaven.
No implied contract with Bonanza exists from what was provided, so no separate asset
should be recorded, assuming the customer relationship with Bonanza cannot be separated
(e.g., sold, transferred, licensed, rented or exchanged) from the entity.
Finally, the half of the customer lists (the lists not under confidentiality agreements) should
be recorded as a separate intangible asset at fair market value.
3. In the case of any contracts with a planned termination date with no plans for renewal, the asset
should be amortized over the life of the contract. The customer relationship intangible assets should
be amortized over the expected period of the customer relationship. Any goodwill arising from the
transaction should not be amortized. Additionally, long-lived assets created from the transaction
(including contract and customer relationship intangibles) would need to be tested for recoverability
whenever events or changes in circumstances indicate that their carrying amounts may not be
recoverable. Any goodwill arising from the transaction must be examined each year to understand the
extent to which any asset impairment has occurred (or between annual tests upon occurrence of an
event or change in circumstances that indicates an impairment of goodwill may have occurred).
References:
EITF 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business
Combination
FASB Statement No. 141, Business Combinations F
ASB Statement No. 142, Goodwill and Other Intangible Assets
FASB Statement No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets
FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting
Measurements

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2006 ALPFA Case Studies


SOLUTIONS

Case 17: Bussell Leaves Bear Creek


Discussion Material
Objective: Students examine a situation in which a plant closing is accompanied by a commitment to
compensate employees for remaining with the operation from the time of the announcement to the
actual closing. In many cases, this time period is quite lengthy, enabling the Company to make changes
to the plan. Students will be tempted to record a liability as of the announcement date, which the FASB
decided in many cases, including this one, was not consistent with the definition of a liability in the
Concept Statements.
Answers:
1. One-time termination benefits are benefits provided to current employees that are involuntarily
terminated under the terms of a one-time benefit arrangement. A onetime benefit arrangement
exists at the date the plan of termination meets all of the following criteria and has been
communicated to employees: (1) Management, having the authority to approve the action,
commits to a plan of termination, (2) The plan identifies the number of employees to be terminated,
their job classifications or functions and their locations, and the expected completion date, (3) The
plan establishes the terms of the benefit arrangement, including the benefits that employees will
receive upon termination (including but not limited to cash payments), in sufficient detail to enable
employees to determine the type and amount of benefits they will receive if they are involuntarily
terminated, and (4) Actions required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made or that the plan will be withdrawn.
(a) Because Bussell could make significant changes to the plan prior to the date of closure, which
is still more than one year in the future, they should not record a liability as of the date of the
commitment. (b) In accordance with FAS 146, paragraph 11, a liability for the termination benefits
would be measured but not recorded initially at the communication date based on the fair value
of the liability as of the termination date and recognized ratably over the future service period
(e.g., if the fair value of the commitment approximates the present value of the future payments,
the present value will be recognized as a liability in equal increments over the ensuing 18 month
period (from July 2004 until December 2005). (c) The fair value of the liability as of the termination
date would be adjusted cumulatively for changes resulting from revisions to estimated cash flows
over the future service period, measured using the credit-adjusted risk-free rate that was used to
measure the liability initially.
2. Bussell should adjust the fair value of the liability as of the termination date to reflect the revised
expected cash flows, discounted for 15 months at the credit-adjusted risk-free rate that was used
to measure the liability initially. Based on that revised estimate, a liability (expense) would be
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recognized in each month during the future service period. Thus, the liability recognized to date
would be reduced to reflect the cumulative effect of that change. A liability would be recognized in
each month during the remaining future service period (12 months). Accretion expense would be
recognized after the termination date in accordance with FAS 146, paragraph 6.
References:
FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting
Measurements.
FASB Concepts Statement No. 6, Elements of Financial Statements.

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2006 ALPFA Case Studies


SOLUTIONS

Case 18: CapTown Covers its Seasonal Risk


Discussion Material
Objective: This case is designed to challenge students to consider alternative revenue recognition
issues associated with forming alliances with suppliers that can result in the seller serving in the role
as an intermediary between the supplier and the end customer. Students will be tempted to show
revenues on a net basis because of the structure of the transactions, particularly in the consignment
condition. However, the decision criteria in EITF 99-19 suggest that the gross method would be more
applicable for both scenarios. This case highlights the challenges associated with revenue recognition
in a dynamic, complex environment.
Answers:
1. EITF 99-19 addresses the issue of revenue recognition involving companies who employ a
middleman to sell and/or distribute their product. EITF 99-19 explores the issue of whether a
company should report its revenue based on the gross amount billed to a customer (gross method),
or the net amount of revenue that it actually will receive (net method). In this case, students must
decide whether CapTown is a retailer or intermediary based on the terms of the agreements with
Hatz and Coverall.







Indicators of the gross method reporting include:


The company is the primary obligor in the arrangement
The company has general inventory risk
The company has latitude in establishing price
The company changes the product or performs part of the service
The company has discretion in supplier selection
The company is involved in the determination of product or service specifications
The company has physical loss inventory risk
The company has credit risk

Indicators of the net method include:


The supplier is the primary obligor in the arrangement
The amount the company earns is fixed
The supplier has credit risk
2. There is a fairly strong argument for reporting revenues for products supplied by Hatz under the
gross method. Although, CapTown can return unsold hats for full credit if the contractual terms are
met, the seller owns the inventory and bears the physical risk, sets the prices, and has credit risk.
All of these conditions suggest
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3. While the agreement to sell hats on consignment for coverall implies that the net method might
be appropriate because the supplier bears physical inventory risk, overall the elements of the
transactions suggest that the gross method is more appropriate because the seller continues to be
the primary obligor, set prices and bear credit risk.
References:
EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
SEC Staff Accounting Bulletin No. 101B, Second Amendment: Revenue Recognition in Financial
Statements
FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments
FASB Statement No. 113, Accounting and Reporting for Reinsurance of Short-Duration and LongDuration Contracts
FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information
FASB Concepts Statement No. 6, Elements of Financial Statements

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2006 ALPFA Case Studies


SOLUTIONS

Case 19: Energen Hedges the Weatherman


Discussion Material
Objective: For this case, students must consider the challenges associated accounting for derivative
instruments entered into by companies not operating instruments as trading activities. Specifically,
this issue involves a degree-day swap common with companies adversely affected by winter
temperatures. Many students have never been exposed to these types of instruments, and this case
enables students to gain a clearer understanding of the gain and loss recognition when managing risk
utilizing derivatives.
Answers:
1. Because Energen and the construction company are entering into the contract to manage operating
risks of their respective companies, this transaction is not considered a trading activity. EITF 99-2
lists factors that suggest a derivative is a trading activity and not subject to the accounting required
under EITF 99-2. Some of the indicators of trading activities include: the operations primary
business is not inherently exposed to the specific weather-related risk, the volume of weather
derivative contract exceeds a reasonable level of weather-related risk inherent in the primary
business, the change in value of the weather derivative contract is expected to move in a direction
that does not mitigate or offset the risk of the underlying exposure, and the operation develops and
utilizes its own proprietary models to price the weather derivative contracts it offers or trades.
2. According to EITF 99-2, a non-exchange-traded forward-based weather derivative in connection
with nontrading activities should account for the contract by applying an intrinsic value method.
The intrinsic value method computes an amount of gain or loss based on the difference between
the expected results from an upfront allocation of the cumulative strike and the actual results
during a period, multiplied by the contract price (for example, dollars per heating degree day). The
intrinsic value method first requires that the reporting entity allocate the cumulative strike amount
to individual periods within the contract term (which are given for Energen as 400, 800, 1000,
1000, and 800 HDDs per month). That allocation should reflect reasonable expectations at the
beginning of the contract term of normal or expected experience under the contract. That allocation
should be based on data from external statistical sources, such as the National Weather Service.
The intrinsic value (or intrinsic value measure) of the contract at interim dates would then be
calculated based on cumulative differences between actual experience and the allocation through
that date. The initial allocation of the cumulative strike amount should not be adjusted over the term
of the contract to reflect actual results.

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3. For November, actual HDDs exceeded allocated HDDs by 100, meaning that there were more
HDDs than allocated. Thus Energen records a gain of $12,000 multiplied by 100 (HDDs in excess of
allocation) for a total of $120,000. For December, actual HDDs were 200 less than allocated HDDs.
Thus Energen records a loss of $12,000 multipled by 200 for a total of $240,000. Thus, a cumulative
loss for the year of $120,000 ($240,000 loss - $120,000 gain) is recorded for the year ended
December 31.
References:
EITF 99-2, Accounting for Weather Derivatives FASB Statement No. 5, Accounting for Contingencies
FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments
FASB Statement No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss

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2006 ALPFA Case Studies


SOLUTIONS

Case 20: Glows Website Makeover


Discussion Material
Objective: Students are exposed to the major steps involved in developing a website and are challenged
to determine the proper accounting for the costs associated with each developmental step. This case
presents interesting challenges because the Company is developing a website as a communication device,
marketing tool, and customer service versus as a means of distributing its products. Students will be
tempted to unilaterally expense or capitalize most items, when both treatments are appropriate depending
on the transaction.
Answers:
1. Accounting treatments for the events, based primarily on EITF 00-2 and SOP 98-1, are as follows.
Transactions related to planning and research should be expensed (1/5, 1/20). Purchases of
developmental software should be capitalized under SOP 98-1 (1/22, 1/29). The costs associated with
contracting with a web services provider should be expensed over the benefit period (1/31). Testing
and graphics design should be capitalized in accordance with SOP 98-1 because they are part of the
development process (2/3, 2/5). However, the loading of content is to be expensed; although, no
consensus was ever reached as to what is appropriate (2/10). Finally, all operating type expenses,
including registering with search engines (a form of marketing, 2/16), training (2/18), launching (2/21), and
routine checks and backups (2/22) should be expensed as incurred as they all relate to normal operations.
2. Costs incurred in the operation stage that involve providing additional functions or features to
the website should be accounted for as, in effect, new software. That is, costs of upgrades and
enhancements that add functionality should be expensed or capitalized based on the general model of
SOP 98-1 (which requires certain costs relating to upgrades and enhancements to be capitalized if it is
probable that they will result in added functionality). Thus, costs associated with adding functionality
should be capitalized, assuming that they can be separated from any costs that are associated with
routine maintenance.
References:
EITF 00-2: Accounting for Web Site Development Costs
FASB Statement No. 61, Accounting for Title Plant
FASB Statement No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed
FASB Concepts Statement No. 6, Elements of Financial Statements
APB Opinion No. 20, Accounting Changes
AICPA Statement of Position 93-7, Reporting on Advertising Costs
AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use
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2006 ALPFA Case Studies


SOLUTIONS

Case 21: Just-For-Teens and MassRetail Share the Risk


Discussion Material
Objective: The objective of this case is to demonstrate to students how organizations manage risks
through structuring of relationships with customers. To help entice customers to its property, the
lessor in this case includes contingent rent clauses to its tenants in which it makes more when tenants
are successful and less when they are not successful. Given the high levels of risk in retail, particularly
when operating in strip-mall outlets, organizations have become increasingly creative in attracting
tenants by sharing risk utilizing mechanisms such as contingent rent. Students might be tempted to
treat each scenario in (1) and (2) the same because the expected revenues are the same (i.e., $2.4
million).
Answers:
1. MassRetail should account for base of the lease in the same fashion as any operating lease by
recognizing the same amount of revenue each month ($166,666). The contingent rental income
should be recognized as revenue when the established criteria for earning the revenue is met
(i.e., Just-For-Teens sales eclipse $40 million for the year). SFAS No. 29, Determining Contingent
Rentals, amended SFAS No. 13 and clarifies that lease payments that depend on a factor that does
not exist or is not measurable at the inception of the lease, such as future sales volume, would
be contingent rentals in their entirety and, accordingly, would be excluded from minimum lease
payments and included in the determination of income as they accrue. SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, clarifies that contingent rental
income accrues (i.e., it should be recognized as revenue) when the changes in the factor(s) on
which the contingent lease payments are based actually occur. It is not appropriate to recognize
revenue based upon the probability of a factor being achieved.
2. Under this scenario, MassRetail would recognize revenue in equal amounts over the life of the
lease (i.e., $200,000 per month) because the lease covers a time period and is not tied to any
future event. The reason for the difference in accounting for the two scenarios is that there are risks
associated with the scenario given in the case that are not present in the scenario for this problem.
In developing the basis for why scheduled rent increases should be recognized on a straight-line
basis, the FASB distinguishes the accounting for scheduled rent increases from contingent rentals.
Paragraph 13 states There is an important substantive difference between lease rentals that are
contingent upon some specified future event and scheduled rent increases that are unaffected by
future events; the accounting under Statement 13 reflects that difference. If the lessor and lessee
eliminate the risk of variable payments by agreeing to scheduled rent increases, the accounting
should reflect those different circumstances.
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Solutions (continued)

2006 ALPFA Case Studies

3. Just-For-Teens should record rent expense in equal amounts throughout the lease term for the
expected value of the lease, which includes the 2 percent of sales in excess of $40 million (i.e., $20
million X .02 = $400,000). Thus, their rent expense should be $200,000 per month. In EITF 98-9 the
Task Force reached a consensus that a lessee should recognize contingent rental expense prior to
the achievement of the specified target that triggers the contingent rental expense, provided that
achievement of that target is considered probable, which is the case for Just-For-Teens. Previously
recorded rental expense should be reversed into income at such time that it is probable that the
specified target will not be met.
References:
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
SFAS No. 13, Accounting for Leases
SFAS No. 29, Determining Contingent Rentals
FASB Technical Bulletin 85-3, Accounting for Operating Leases with Scheduled Rent Increases
EITF 98-9, Accounting for Contingent Rent

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2006 ALPFA Case Studies


SOLUTIONS

Case 22: Mayberry Zoo Plays the Market


Discussion Material
Objective: This case enables students to gain experience with transactions common to not-for-profit
organizations. In this situation, students determine how donations should be recorded on financial
statements, as well as the proper accounting treatment when a financial management organization
sets up an endowment fund so that the not-for-profit organization does not have to manage securities.
Answers:
1. MZS would recognize the fair value of the gift of securities from Fred Howard as contribution
revenue and establish a corresponding investments asset. When it transfers the securities to
TCF, it would recognize the transfer as a decrease in investments and an increase in another asset
representing the rights to the endowment (e.g., as a beneficial interest in assets held by TCF under
FAS 136, paragraph 17(d)).
2. TCF would recognize the fair value of the transferred securities as an increase in investments and a
liability to MZS because MZS transferred assets to TCF and specified itself as beneficiary (FAS 136,
paragraph 17(d)). The transfer is not an equity transaction because TCF and MZS are not financially
interrelated organizations (FAS 136, paragraph 18(b)). MZS is unable to influence the operating or
financial decisions of Community Foundation (FAS 136, paragraph 13(a)).
3. MZS would disclose in its financial statements the identity of TCF, the terms under which TCF will
distribute amounts to MZS, a description of the variance power granted to TCF, and the aggregate
amount reported in the statement of financial position and how that amount is described (FAS 136,
paragraph 19).
4. Variance power is the unilateral power to redirect the use of donated assets away from a specified
beneficiary or beneficiaries. In this case, TCF acts as a donation recipient under which MZS
has explicitly granted TCF variance power. TCF then has unilateral power to override the donors
instructions without approval from the donor, specified beneficiary, or any other interested party
(FAS 136. paragraph 12).
References:
FASB Statement No 136, Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That
Raises or Holds Contributions for Others
FASB Statement No 116, Accounting for Contributions Received and Contributions Made
FASB Interpretation No. 42, Accounting for Transfers of Assets in Which a Not-for-Profit Organization Is
Granted Variance Power
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2006 ALPFA Case Studies


SOLUTIONS

Case 23: TCB Corp. and Stock-Based Employee


Compensation
Discussion Material
Objective: The objective of this case is to have students better understand the current reporting
requirements related to stock-based employee compensation. Also, they are required to understand
the changes to the reporting requirements that have occurred between 2002 and 2004. Options
available for reporting and disclosure of the impact of such transactions are brought to the students
attention as they respond to the questions in the case.
Answers:
1. TCB Corp. may choose to disclose the pro forma effects of the fair value based method in the notes
to the financial statements.
2. The following three options were available prior to 2004.
Prospective method: The fair value method of expensing options is applied only to options
granted in the year of adoption and subsequently. This was the method originally required by
FAS No. 123.
Modified prospective method: The fair value method of expensing options is applied to all
unvested options and options granted in the year of adoption and subsequently.
Retroactive restatement method: The fair value method of expensing options is applied to all
years presented as if it had been adopted for option grants after December 15, 1994.
3. The Prospective Method noted above is not an option for TCB Corp. after December 15, 2003.
4. Reported net income for 2004 would be increased by the stock-based employee compensation
expense included in reported net income, net of related tax effects. Reported net income for 2004
would be decreased by the total stock-based employee compensation expense determined under
the fair value based method for all awards, net of related tax effects. Prominent disclosures in both
annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results are required.
References:
SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure An
Amendment of FASB Statement No. 123
SFAS No. 123, Accounting for Stock-Based Compensation.
APB Opinion No. 25, Accounting for Stock Issued to Employees.

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2006 ALPFA Case Studies


SOLUTIONS

Case 24: Bunyan Lumber Goes Green


Discussion Material
Objective: This case asks students to consider the accounting treatment for several difficult but
increasingly common environment-oriented issues. For the EPA issues, students might be tempted
to treat both transactions the same. However one is capitalized and one is expensed. For the
reforestation agreement, students must consider the complex thinking associated with contractual
relationships associated with agreeing to change an asset at the end of scheduled operations.
Answers:
1. In the case of the reforestation agreement, Bunyan must create a liability and associated expense
equal to the fair value of the reforestation obligation. Bunyan is able to factor in the likelihood that
Plaid will require reforestation in determining the amount recorded. For this example, Bunyan
would multiply the total cost projected to reforest of $250,000 by the probability of reforesting,
which is 20 percent. Thus a total of $50,000 ($250,000 x 20%) should be reserved. However,
Bunyan should discount the computed amount by a rate representing the number of years
remaining in the agreement at a credit-adjusted risk free interest rate. During the term of the lease,
Bunyan should reassess both (1) the likelihood that Plaid will require reforestation and (2) the total
projected cost to reforest, and the liability should be adjusted accordingly.
2. For expenses associated with air pollution caused by manufacturing activities, items should
be expensed unless they improve the safety or efficiency of the property or mitigate or prevent
environmental contamination that is yet to occur. In the case of the agreement with the EPA,
the $1.6 million related to acquiring and installing pollution control equipment can be capitalized
because the expenditures satisfy both conditions. However, the $1.2 million fine does not satisfy
either condition, so the entire amount should be expensed.
References:
FAS 143, Accounting for Asset Retirement Obligations
EITF 90-8, Capitalization of Costs to Treat Environmental Contamination
FASB Concepts Statement No. 6, Elements of Financial Statements
AICPA Statement of Position 96-1, Environmental Remediation Liabilities

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2006 ALPFA Case Studies


SOLUTIONS

Case 25: Sandlots Symbiotic Relationship


Discussion Material
Objective: Students are exposed to various types of accounting treatments by Sandlot, Inc.s for
considerations received from Bambino Baseballs, Inc. This case involves vendor rebate accounting,
which has become a major accounting issue for retailers and consumer product manufacturers.
Answers:
1. If the customer meets the required level of purchases or remains a customer for the specified
period of time, rebates/refunds are treated as a reduction of the cost of sales to each transaction
towards the goal. If the rebate/refund is not probable and reasonably estimable, it should be
recognized as the milestones are achieved. In this case, Sandlot will purchase 50,000 or 100,000
balls from Bambino and reduce its cost of goods sold by $10,000 or $20,000 (depending on the
amount purchased), which will increase its net profit by the same amount.
2. If the customer meets the required terms of the advertising and promotion agreement, the full
amount of the advertising allowance should be taken as a reduction to advertising and promotion
expenses, unless the amount exceeds total advertising expenses, in which case the excess
amount is taken as a reduction of cost of sales. In this case, the allowance is 2 percent of the
$280,000 purchase price ($300,000 full price less $20,000 cash-back arrangement), resulting in a
$5,600 reduction in advertising expenses. Bambino also benefits from this arrangement because
its products are actively being promoted, which increases its prospects with other customers.
References:
EITF 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a
Vendor.
FASB Statement No. 5, Accounting for Contingencies
FASB Statement No. 116, Accounting for Contributions Received and Contributions Made
FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information
FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business
Enterprises
APB Opinion No. 29, Accounting for Nonmonetary Transactions

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2006 ALPFA Case Studies


SOLUTIONS

Case 26: North Beach Diet Makes Bigger Inc. Better


Discussion Material
Objective: The case tests students ability to determine if a concession has been given by a lessor to a
lessee. Students are encouraged to understand the implications of reimbursements and other benefits
given by vendors to a lessees income statement, and the importance of recognizing concessions
correctly.
Answers:
1. The moving expense paid to North Beach is a rental concession that should be treated by North
Beach as an adjustment to the rental expense on a straight-line basis over the term of the new
lease. $5,500 / 24 months = $229.17 per month reduction in the rental expense for North Beach
(and a $229.17 per month reduction in Biggers rental revenue).
2. Since Bigger is not able to find a new tenant or use the department store property, a ($63,000 / 12
= $5,250 per month * 10 months =) $52,500 loss would be recognized as consideration given by
Bigger to North Beach. This lease incentive is recognized straight-line over the lease term.
3. The concession is calculated as follows: $63,000 lease / 12 months = $5,250 per month * 10
months = $52,500 remaining on lease $25,000($2,500 per month * 10 months) = $27,500 loss /
24 months new lease term = $1,145.83 per month reduction in Biggers rental revenue.
References:
FASB Statement 146, Accounting for Costs Associated with Exit or Disposal Activities
FASB Statement No. 13, Accounting for Leases
FASB Interpretation No. 27, Accounting for a Loss on a Sublease
FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases Proposed
FASB Technical Bulletin No. 88-b, Issues Relating to Accounting for Leases, issued April 14, 1988

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SOLUTIONS

Case 27: Texas Holdem


Discussion Material
Objective: By introducing the realistic scenario of the decision whether or not to renew an intangible
asset, the student is forced to think not only of the decision itself, but the repercussions involved
for the financial statements. Additionally, the student gains an understanding of indefinite intangible
assets and the amortization issues surrounding them.
Answers:
1. The gaming license is considered an intangible asset. The initial value of the asset is $47,500
because license and market entry costs associated with obtaining a gaming license generally are
capitalized after it is probable that a license will be acquired.
2. To estimate the useful life of the gaming license, the expected use of the license must be
determined. Assuming Miguel does not plan to renew the license after the seven-year period, and
there are no legal/regulatory provisions that may limit the useful life, the $47,500 intangible asset
should be amortized over the seven-year span that it contributes to Miguels cash flows. Since the
intangible asset relating to the gaming license is a necessary part of operations, amortization would
be included in the income statement as an operating expense.
3. Paragraph 11 of Statement 142 states that If no legal, regulatory, contractual, economic, or other
factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset
shall be considered indefinite. The term indefinite does not mean infinite. In this case, there is no
limitation of Miguels ability to renew his gaming license annually. According to Paragraph 16 of
Statement 142, If an intangible asset is determined to have an indefinite useful life, it shall not be
amortized until its useful life is determined to be no longer indefinite. In this case, the gaming license
would not be amortized. However, the valuation of the $47,500 intangible asset would be based on a
fair value estimate of the asset, subject to tests for impairment under FASB Statement No. 142. For
example, if there was evidence that the commission would not renew the license, impairment losses
associated with the capitalized intangible asset likely would need to be recognized.
References:
EITF 03-9, Determination of the Useful Life of Renewable Intangible Assets under FASB Statement
No. 142
FASB Statement No. 141, Business Combinations
FASB Statement No. 142, Goodwill and Other Intangible Assets

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2006 ALPFA Case Studies


SOLUTIONS

Case 28: A Titanic Proposal


Discussion Material
Objective: The case tests students ability to understand a possible defense to a corporate takeover. In
addition, students must determine at what value treasury stock should be treated in the equity section
when repurchased as a takeover defense mechanism. Finally, students are challenged to understand
how the premium paid for treasury stock is treated when related to a takeover defense scheme.
Answers:
1. FASB Technical Bulletin 85-6 indicates that the quoted market price of treasury shares purchased
represents the fair value, and that only the amount representing the fair value of the treasury
shares should be accounted for as the cost of the shares acquired. In this case, the current market
value and thus fair value of the 2,000 treasury shares is (2,000*$38/share) $76,000.
2. FASB Technical Bulletin 85-6 indicates that the purchase of shares at a price significantly in excess
of the current market price creates a presumption that the purchase price includes amounts
attributable to items other than the shares purchased and should be accounted for based on
the substance of the transaction. FASB Technical Bulletin No 85-6 indicates that in general, the
excess over market price paid for treasury shares is expensed as incurred. The Bulletin states that
payments such as these do not give rise to recognition as assets.
References:
EITF 85-2, Classification of Costs Incurred in a Takeover Defense
FASB Technical Bulletin No. 85-6, Accounting for a Purchase of Treasury Shares at a Price Significantly
in Excess of the Current Market Price of the Shares and the Income Statement Classification of
Costs Incurred in Defending against a Takeover Attempt A
PB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions

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2006 ALPFA Case Studies


SOLUTIONS

Case 29: A Hardy Investor


Discussion Material
Objective: The case challenges students ability to understand which accounting method to use when
recording investments in cases where the investor does and does not exercise significant influence
over the operating and financial policies of an investee. Additionally, it provides some background on
the differences between Limited Partnerships, Limited Liability Companies, and Corporations.
Answers:
1. Limited liability companies (LLCs) have characteristics of both corporations and partnerships but
are dissimilar from both in certain respects. Like a corporation, the owners of an LLC generally
are not personally liable for the liabilities of the LLC. However, like a partnership, the members
of an LLCrather than the entity itselfare taxed on their respective shares of the LLCs
earnings. Unlike a limited partnership, it is generally not necessary for one owner (for example,
the general partner in an LP) to be liable for the liabilities of the LLC. Also, unlike an LP in which
the general partner manages the partnership, or a corporation in which the board of directors and
its committees control the operations, owners may participate in the management of an LLC.
Members may participate in an LLCs management but generally do not forfeit the protection
from personal liability afforded by the LLC structure. In contrast, the general partner of a limited
partnership is presumed to have control but also has unlimited liability, whereas the limited
partners have limited liability like the members of an LLC. Additionally, all partners in a general
partnership have unlimited liability. Like a partnership, financial interests in most LLCs may be
assigned only with the consent of all of the LLC members. Like a partnership, most LLCs are
dissolved by death, bankruptcy, or withdrawal of a member.
2. According to EITF 03-16, investments in LLCs maintain a specific ownership account for each
investor, and thus should be treated as similar to an investment in a limited partnership for the
purposes of determining which accounting method to use. Opinion 18 states that investments
that allow the investor to exercise significant influence over the operating and financial policies
of an investee should be accounted for using the equity method. If this does not apply, the cost
method should be used. SOP 78-9 dictates that limited partnership investments of more than 3 to
5 percent are considered to be more than minor, and therefore, should be accounted for using the
equity method. In this case, the Larrys Limited Partnership and Curlys Limited Liability Corporation
should be recorded using the equity method, and Moes Corporation should be recorded using the
cost method since ownership is only 4 percent and there is no involvement with the Company.

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Solutions (continued)

2006 ALPFA Case Studies

3. Curlys Limited Liability Corporations investment of only 2% should likely be considered minor, and
therefore should be accounted for using the cost method. As discussed in answer 2 above, LLCs
are generally treated like LPs for accounting purposes. Because L. Hardy Company now owns
less than 3 to 5 percent of the LLC its investment would likely fall below the more than minor
threshold.
References:
EITF 03-16, Accounting for Investments in Limited Liability Companies
APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock
APB Opinion No. 20, Accounting Changes
AICPA Accounting Interpretation 2, Investments in Partnerships and Ventures, of APB Opinion No. 18

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2006 ALPFA Case Studies


SOLUTIONS

Case 30: Two Great Tastes Get Together


Discussion Material
Objective: To introduce students to the issues involved in a business combination in which the
parties have an existing relationship, including outstanding debt that is effectively settled as a result
of the combination. This case also exposes students to common business incentives for a business
combination, integration of the supply chain and synergies that result in new product offerings.
Answers:
1. The assets acquired in a business combination should be accounted for by valuing all assets at fair
values based on the marketplace perspectivethe price that would paid for them if acquired by a
third party, including established market prices when available.
2. The excess of the purchase price for Peanut Butter Inc. over the fair value of net assets generally is
recorded as goodwill is subject to tests for impairment on an annual basis. However, if any portion
of that excess amount can be separated into specific intangible assets that meet the conditions for
separation contained in FASB 141 (e.g., if Peanut Butter Inc. is subject to an operating lease under
favorable market conditions), a separate intangible asset can be established that also is evaluated
for impairment on an annual basis, unless there is an established useful life of the intangible (e.g., a
patent), in which case the amount should be amortized over its useful life.
3. Since the business combination results in the settlement of an existing receivable (because all
intercompany receivables must be eliminated), EITF 04-1 requires the settlement to be accounted
for in the same manner as if the settlement occurred with a third party. In this case, Chocolate
Company no longer owes the $300,000, so ChocolatePeanutButter Co. should recognize a
$300,000 gain from settlement with a third party.
References:
EITF 04-1, Accounting for Preexisting Relationships between the Parties to a Business Combination
FASB Statement No. 141, Business Combinations
FASB Statement No. 142, Goodwill and Other Intangible Assets
EITF 98-3, Determining whether a Nonmonetary Transaction Involve Receipt of Productive Assets or of
a Business

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2006 ALPFA Case Studies


SOLUTIONS

Case 31: Can You Dig It?


Discussion Material
Objective: This case introduces students to the concept of intangible versus tangible assets. It also
helps students understand that tangible assets are not necessarily physically tangible at the time they
are recognized as such.
Answers:
1. The mineral rights are tangible assets. Mineral rights are defined as the legal right to explore,
extract, and retain at least a portion of the benefits from mineral deposits. The Task Force reached
a consensus in EITF 04-2, Whether Mineral Rights are Tangible or Intangible Assets, that mineral
rights under the above definition are tangible assets and should be accounted for as tangible
assets.
2. Diggin It should report the aggregate carrying amount of mineral rights as a separate component
of Property, Plant and Equipment either on the financial statements or in the notes. In this case, the
aggregate carrying amount is the $250,000 paid for the right to mine contract. No future payments
or obligations pertaining to the mineral rights exist. The $250,000 should be shown as a separate
component of PP&E on the financial statements or in the notes to the financial statements.
References:
EITF 04-2, Whether Mineral Rights are Tangible or Intangible Assets
FASB Statement No. 13, Accounting for Leases
FASB Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies
FASB Statement No. 25, Suspension of Certain Accounting Requirements for Oil and Gas Producing
Companies
FASB Statement No. 141, Business Combinations
FASB Statement No. 142, Goodwill and Other Intangible Assets

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2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The
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2006 ALPFA Case Studies


SOLUTIONS

Case 32: Computer Connections


Discussion Material
Objective: This case exposes students to the challenging topic of revenue recognition for complex
sales transactions, involving multiple deliveries of separable components to a complete system. The
critical issue for whether revenue can be recognized on partial shipments is whether the separable
components can be purchased from an unrelated buyer without requiring alterations to the shipped
components.
Answer:
1. Computer Connections should account for the deliverables as separate units for revenue
recognition purposes. The first condition for separation is met for the CPU and keyboard. Although
the monitor is essential to the functionality of the CPU and keyboard, it could be acquired by Skolar
from another computer supplier without altering the capabilities of CPU or keyboard. The second
condition for separation also is met because sufficient objective, reliable, and verifiable evidence
of fair value exists to allocate the contract price to the CPU, monitor, and keyboard based on the
prices charged for the separate pieces of equipment by other unrelated vendors. The general
right of return should be accounted for in accordance with FASB Statement No. 48, Revenue
Recognition When Right of Return Exists. Since the contract for sale of the CPU and keyboard does
not provide the customer any refund rights if the monitor is not delivered, it is not necessary to alter
the accounting treatment based on the requirements of Statement No. 48 to this case.
2. If the monitor could not be obtained from an outside supplier or a monitor obtained from an outside
source inhibited the performance of the CPU or keyboard, the first criteria for separation would not
be met and revenue could not be recognized until the monitors were delivered.
References:
EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables
FASB Statement No. 5, Accounting for Contingencies
FASB Technical Bulletin No. 90-1, Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
FASB Statement No. 48, Revenue Recognition When Right of Return Exists

KPMG University Connection


www.KPMGUniversityConnection.com

2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The
KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

2006 ALPFA Case Studies


SOLUTIONS

Case 33: The Pulverized Pizzeria


Discussion Material
Objective: This case exposes students to the concept of extraordinary items and helps them
understand when a transaction can be classified as extraordinary. Additionally, students will learn what
impact extraordinary items can have on an income statement, focusing on the reported net income.
Answer:
1. Als decision to pay the idle employees is voluntary, and thus should be treated as employee
expenses would normally be treated in the course of everyday business. The salary expense should
be expensed as incurred and cannot be recorded as a liability (which is the case in EITF 01-10 which
deals with employee salary expense as a result of the September 11th terrorist attacks).
2. Extraordinary items are events and transactions that are distinguished by their unusual nature and
by the infrequency of their occurrence. Thus, both of the following criteria should be met to classify
an event or transaction as an extraordinary item:
a. Unusual naturethe underlying event or transaction should possess a high degree of
abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary
and typical activities of the entity, taking into account the environment in which the entity
operates.
b. Infrequency of occurrencethe underlying event or transaction should be of a type that
would not reasonably be expected to recur in the foreseeable future, taking into account the
environment in which the entity operates.
According to the definition above, the building damage qualifies as an extraordinary event.
Extraordinary items should be segregated in the financial statements. Accounting treatment
of the extraordinary event is as follows:


Income before extraordinary items


Extraordinary items (Note_____)
Net income

$523,000
$135,000
$388,000

References:
APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions
EITF 01-10, Accounting for the Impact of the Terrorist Attacks of September 11, 2001

KPMG University Connection


www.KPMGUniversityConnection.com

2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The
KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.